Besides a Hard Landing, What Else Does CBRE’s Chief Economist Foresee?
“There has been some central bank action behind the scenes and there is a period of price discovery in the marketplace.”
LOS ANGELES—Last week, Richard Barkham, global chief economist and head of Americas research at CBRE, served as opening keynote at the GlobeSt. Net Lease Fall 2022 national event and said that we are in for a hard landing. He also spoke about real estate and said that investment sales are dropping very quickly and believes they have further to drop.
“The Fed is very nervous about a big price drop in US real estate,” he explained. “There has been some central bank action behind the scenes and there is a period of price discovery in the marketplace.”
On the capital front, he said that while it is available, it is at a higher cost and more selective. Cap rates are also on the rise but it is across all sectors, he explained. “We don’t quite know where it will settle out because we don’t quite know where interest rates will settle out,” he said, but for those well capitalized, he said that “this is an opportunity.”
Within the office sector, Barkham sees a flight to quality. “Occupiers are going for high quality and high amenity space because it isn’t easy to get people back in the office.” He plains that while it is trending up, it is slow due to the standoff between management and workers. “There are still new completions coming to market and the top 10% of office rents are going up but the bottom ones are going down… It is a bifurcated market.”
Retail is surprisingly buoyant, he said. “All of the companies that went bust during Covid restructured and came back strong.” The post pandemic revival is driving things and a resurgence is underway, he added.
He says that we are now also running out of “really good space” in retail since “we haven’t really built it in 15 years.” For the remainder of the year, he projects that 2022 will be the second highest year on the record but says that leasing volumes will be down next year, which might not be a bad thing. “There is an argument that it will push up vacancy rates, but another argument is that it is what we need.”